Beijing – In the July-September quarter, the pace of China’s economic growth has slowed more than expected. The major reasons for the decline are the power crunch due to coal shortages, the ‘Evergrande Crisis’ in the real estate sector and the ongoing crackdown on various industries by the ruling communist regime. China’s slump has also weighed on international stock markets, with indices in Europe, Asia and the US falling.
On Monday, China declared a growth rate of 4.9% for the July-September quarter. Between April and June, the pace of China’s economic growth was about 8%. Besides, analysts and financial institutions had predicted a fall of one to one and a half per cent. However, the information that has transpired shows that the pace of development has slowed down. With this, it is believed that the chances of China’s economy recovering have descended.
The energy crunch, the ‘Evergrande Crisis’ and the ruling regime’s ongoing crackdown on industries are the major reasons for the meagre growth rate throughout the year. Altogether, the outbreak of the corona pandemic with the growing debt burden is believed to have contributed to the slowdown in growth. Demand for electricity in China had surged while returning to normalcy from the Coronavirus pandemic. With the increase in demand, power plants began to experience a shortage of coal.
Coal accounts for over 60% of China’s electricity generation. Last year, China began an aggressive trade war against Australia, imposing restrictions on coal imports from that country. It appeared that the coal ships reaching from Australia to China were deliberately withheld. This has hit China hard. China had started importing from other countries after imports from Australia declined. However, due to high rates, power companies in China are facing difficulties. Simultaneously, due to wintertime, coal mines in China have decreased the domestic production of electricity.
The power outages have directly affected the manufacturing sector, which is the backbone of China’s economy. Currently, more than 20 provinces in China are experiencing power cuts at various levels. Its impact has hit almost 40% of China’s factories and industries. Many factories have been shut down for a few days to a month. It also includes factories that produce for foreign companies. While some companies have cancelled their orders, many companies have started moving to meet the demand by taking products from factories in other countries.
As the power crisis intensifies, the extent of the crisis in the real estate sector is also escalating. Evergrande, China’s chief real estate and construction company, has defaulted on three weeks of its debt instalments and is likely to be declared bankrupt if it does not pay by the fourth week. Following Evergrande, at least five companies in the real estate sector in China and Hong Kong have been in trouble in the past two weeks. Two of these companies have defaulted on loan instalments while other companies are also indicating likewise. Real estate and related sectors account for about 30% of China’s economy.
The ruling communist regime of China has begun targeting the private sector in the last few months. These include sectors such as information technology, gaming, and entertainment. Fostering the issue of social liability, sanctions have been imposed on companies in these sectors and indicate a big action. Concurrently, it has been revealed that banks disbursing loans to big companies are also being investigated. Moreover, the Corona outbreak and lockdown, torrential rains in various provinces and a huge debt burden on the economy; said to have hit the economy. Economists and authorities claim that mismanagement and improper handling are the issues accountable for China’s economic downfall.
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